If Zero Rates Are Gone for Good, What Is a Checking Account Worth to a Bank?

Bank of America reported average deposits of $957 billion in Q2 2026 and said it remained No. 1 in U.S. consumer deposits, while its checking-account base has grown for 30 consecutive quarters. The article argues that sticky, low-cost deposits give banks greater control over funding costs and help protect lending spreads as interest rates rise, unlike mortgage REITs such as AGNC Investment that face market-driven funding costs and portfolio-value pressure. The comparison is structurally favorable for Bank of America but does not introduce a material new earnings or valuation catalyst.

Analysis

The relevant equity signal is not nominal rates but deposit beta and the durability of noninterest-bearing operating balances. BAC’s scale supports earnings resilience if policy remains restrictive, but the incremental benefit is likely more pronounced at banks with greater rate-sensitive asset books and less capital-markets noise: PNC, USB and RF. BAC’s valuation already embeds a franchise premium, so upside requires net interest income to stabilize while credit costs remain contained; deposit growth alone is not a near-term EPS catalyst without improved asset yields or loan growth.

AGNC is a different expression of the curve and mortgage-volatility regime, not a clean negative read-through from higher rates. Its economics improve if agency MBS spreads tighten, repo financing remains orderly, and prepayment volatility falls—even in a higher-for-longer environment. The central risk is that Treasury volatility or renewed Fed balance-sheet tightening widens agency MBS spreads, pressuring book value faster than dividend income can compensate; that can occur over days, whereas deposit repricing plays out over quarters.

Consensus may overstate large-bank deposit stickiness as permanently cheap funding. Money-market funds, Treasury bills, and digital account opening have lowered switching friction, meaning a renewed rate upswing could lift deposit betas with a lag. Conversely, if rates decline over the next 6-18 months, BAC’s deposit franchise should reprice downward faster than loan yields, initially compressing NII before lower rates revive loan demand and capital-markets activity.

Key Decisions for Investors

• Maintain a 1-3 month relative-value long PNC or USB versus BAC rather than adding outright BAC: regional franchises offer greater operating leverage to stabilization in NII and trade without BAC’s full franchise premium. Exit if quarterly NII guidance deteriorates or deposit costs accelerate by more than management’s forecast.
• Use AGNC only as a tactical 1-3 month long if agency MBS option-adjusted spreads tighten materially and the MOVE index declines; target total return is 8-12% including carry, with a 5-7% stop tied to book-value erosion. Do not treat its dividend yield as a substitute for bank exposure.
• For BAC, wait for evidence that deposit mix is improving and NII guidance has bottomed before adding. A constructive 6-18 month position is supported by easing funding costs and recovering fee pools; falsification is persistent deposit outflow, rising charge-offs, or another downward revision to NII.
• Monitor money-market fund assets, deposit beta disclosures, and the 2-year Treasury yield around upcoming earnings. A sharp rise in short rates or money-fund balances is an alert to reduce bank NII exposure; a declining short-end rate with stable balances favors large deposit franchises.